CHAPTER -2 OVERVIEW OF ENGINEERING AND CHEMICAL/PHARMACEUTICAL INDUSTRY IN INDIA

Transcription

1 CHAPTER -2 OVERVIEW OF ENGINEERING AND CHEMICAL/PHARMACEUTICAL INDUSTRY IN INDIA 2.1 Engineering Industry in India Introduction India has a strong engineering and capital goods base. The engineering sector is the largest sector among the industrial segments in India and provides direct and indirect employment to a large number of skilled and non-skilled workers. It is a diverse industry with a number of segments, and can be broadly categorized into two segments, namely, heavy engineering and light engineering. The engineering sector is relatively less fragmented at the top, as the competencies required are high, while it is highly fragmented at the lower end (e.g. unbranded transformers for the retail segment) and is dominated by smaller players. The current size of Indian engineering sector indicates a faster growth rate and huge potential towards employment opportunities and better scope for being a global player. The latest talent management and recruitment trends in this sector have gone through a metamorphic transformation. As far as the industry numbers are concerned, the facts are available for all to see. India has emerged in No.1 spot amongst 33 countries in terms of hiring, as per the Manpower Employment Outlook Survey With strong economic fundamentals, Indian Inc. is on a steady growth path. Compensation markets have in the recent past been moving from different sectors in the range of percent on a total cost to company basis. The cost for talent acquisition for top end talent even in engineering markets has been growing over a period of time. Some of the best retention techniques hover around offering huge project completion bonuses, short-term incentives programs, long term value creation bonuses, stock option programs and such other retention tools, which are built around strong performance management system. Higher mobility, upward migration to other higher sectors are some of the differences that can be seen. Arbitrage of talent from classical manufacturing sectors to 13

2 infrastructure, mining and construction sectors can be seen as these are the new sunrise sectors of the new Indian economic development sector The Indian economy expects higher growth in the coming future, The engineering, oil and gas, manufacturing, power transmission and construction sectors/industries will continue to rise in India, as these sectors are considered to be the backbone of the economy and are intricately linked with umpteen other core sectors, for its demand.11 Following chart 2.1 depicts the Classification of Engineering industry in India Chart 2.1 Engineering Sector Heavy Light Engineering Transport Equipment Capital Goods Other Machinery / Equipment Source: Corporate Catalyst India; June 2011 Low-tech items like Castings, forgings and fasteners Highly sophisticated microprocessorbased process control equipment, diagnostic The engineering industry in India manufactures a wide range of products, with heavy engineering goods accounting for bulk of the production. Most of the leading players are engaged in the production of heavy engineering goods and mainly produces highvalue products using high-end technology. Requirement of high level of capital investment poses as a major entry barrier, because of which the small and unorganized firms have a small market presence Sree Rama Rao engineeringdustry.html#ixzz2aibgur3r on October 3, 2008, industry, 8 th October 2012, 14

3 Heavy industry has been performing well with the industrial sector recording a growth rate of 10.3% during Apr-Oct 2010, manufacturing sector recorded a growth rate of 11% during the same period while mining registered 8.3% growth and electricity recording a growth of 4.6%. Capital goods sector grew by an impressive 24% in Apr- Oct 2010, consumer goods by 8.2%, basic goods by 5.8%, intermediate goods by 10.4% and consumer durables by 24.4% in the same period. At present, the capital goods industry, including machine tools contributes 12% to the total manufacturing activity and provides critical input, i.e. machinery and equipment to the remaining sectors covered under the manufacturing activity. Manufacturing sector is contributing about 16% to the GDP and has been standing steadily at this level for the last few years. This is based on DHI statistics 13. Looking at the index of industrial production (IIP) of heavy industry products, IIP grew by more than 20% during Apr-Oct 2010 for these products passenger cars, tractors, lifts, air & gas compressors, cutting tools, electric generators, turbines, commercial vehicles, printing machinery and dump loaders. Many of the players in the heavy industry sector are public companies. Department of Heavy Industry (DHI) invested US $ 2.8 billion in 2010 in 31 of these public sector companies. These companies collectively generated revenue of US $ 9.4 billion in and are expected to be sized at US $ billion in , as per DHI Annual Report of The light engineering goods segment, on the other hand, uses medium to low-end technology. Entry barrier is low on account of the comparatively lower requirement of capital and technology. This segment is characterized by the dominance of small and unorganized players which manufacture low-value added products. However, there are few medium and large scale firms which manufacture high-value added products. This segment is also characterized by small capacities and high level of competition among the players Pg. 3 15

4 Table 2.1 Classification of the Engineering Sector in India Sub-segments Number of organized Players Heavy Engineering Sector Cement Machinery 18 Sugar Machinery 27 Rubber Machinery 19 Metallurgical Machinery 39 Machine Tool 125 Material Handling Equipment 50 Mining Machinery 32 Dairy Machinery 16 Light Engineering Sector Welded steel pipes & tubes 123 Process Control Instrument 26 Antifriction Roller Bearing 19 Plain paper copier 12 Source : Ministry of Heavy Industries as public enterprises, Annual Report 2007 and Heavy engineering industry comprises of textile machinery, cement machinery, sugar machinery, rubber machinery, material handling equipments, oil field equipments, metallurgical machinery, mining machinery, dairy machinery And machine tools. The major end-user industries for heavy engineering goods are power, infrastructure, steel, cement, petrochemicals, oil & gas, refineries, fertilisers, mining, railways, automobiles, textiles, etc User Segments The major end-user industries for heavy engineering goods are power, infrastructure, steel, cement, petrochemicals, oil & gas, refineries, fertilisers, mining, railways, automobiles, textiles, etc. Light engineering goods are essentially used as inputs by the heavy engineering industry. 16

5 2.1.3 Key Growth Drivers of Indian Engineering Sector The engineering sector in India has been growing because of growth in the user industries and several new projects being undertaken in various core industries such as railways, power, infrastructure, etc. 14 Capacity creation in sectors such as infrastructure, oil & gas, power, mining, automobiles, auto components, steel, refinery, consumer durables, etc, is driving growth of the engineering industry. Some of the Factors affecting growth of Indian engineering sector are:- Growth of the key user-industries Government s thrust on the power and construction industries India being preferred by global companies as an outsourcing destination as it enjoys lower labour cost and better designing capabilities. The following table indicates the FDI inflows in the Engineering Sector Aug 91 to Dec 06 Table 2.2 FDI inflows in the Engineering Sector Aug 91 to Dec 06 Sectors FDI (Rs mn) %age of total inflows Electrical Equipments* 302, Miscellaneous Mechanical & Engineering 21, Industrial Machinery 9, Machine Tools 8, Earth Moving Machinery 3, Prime Movers 1, Boilers & Steam Generating Plants *Includes Computer Software & Electronics; Other than Electrical Source: Department of Industrial Policy & Promotion, Heavy Engineering Sector The heavy engineering sector can be classified into two broad segments capital goods/machinery (which is further classified as electrical machinery/equipment and non-electrical machinery/equipment), and equipment segments

6 Electrical machinery includes the following: power generation, transmission and distribution equipment such as generators and motors, transformers and switchgears. Non-electrical machinery includes machine / equipment used in various sectors such as material handling equipment (earth moving machinery, excavators, cranes, etc.), boilers, etc Heavy Electrical Industry The fortunes of the heavy electrical industry have been closely linked to the development of the power sector in India. The heavy electrical industry has under its purview power generation, transmission, distribution and utilization equipment. These include turbo generators, boilers, turbines, transformers, switchgears and other allied items. These electrical equipment (transformers, switchgears, etc.) are used by almost all the sectors. Some of the major areas where these are used include power generation projects, petrochemical complexes, chemical plants, integrated steel plants, non-ferrous metal units, etc. The existing installed capacity of the India heavy electrical industry is 4,500 MW of thermal, 1,345 MW of hydro and about 250 MW of gas-based power generation equipment per annum. The industry has the capability to manufacture transmission and distribution equipment up to 400 KV AC and high voltage DC The Heavy Electrical Industry can be classified into the following product categories: Turbines and Generator Sets The Indian industry has established a manufacturing capacity of various kinds of turbines of more than 7,000 MW per annum. The PSE Bharat Heavy Electricals Ltd (BHEL) has the largest installed capacity. There are units in the private sector also which manufacture steam and hydro turbines for power generation and industrial use. Domestic manufacturers of AC generators are capable of manufacturing AC generator from 0.5 KVA to 25,000 KVA and above

7 Boilers The Indian boilers industry has the capability to manufacture boilers with super critical parameters up to 1,000 MW unit size. BHEL is the largest manufacturer of boilers in the country, with a market share of over 60%. It has the capability to manufacture boilers for super thermal power plants, apart from utility boilers and industrial boilers Transformers The domestic transformer industry has the capability to manufacture the whole range of power and distribution transformers. Special types of transformers required for furnaces, rectifiers, electric tract, etc, and series and shunt reactors as well as HVDC transmission up to 500 KV are also being manufactured in India. The Indian transformer industry exports to over 50 countries including the US, Europe, South Africa, Cyprus, Syria, Iraq, and Far East countries Switchgear and Control Gear The switchgear and control gear industry in India is a fully developed one, producing and supplying a wide variety of switchgear and control gear items required by the industrial and power sectors. The entire range of circuit breakers from bulk oil, minimum oil, airblast, vacuum to SF6 are manufactured to standard specification. The range of products produced cover the entire voltage range for 240V to 800KV, switchgear and control gear, MCBs, air circuit breakers, switches, rewireable fuses and HRC fuses with their respective fuse bases, holders and starters Electrical Furnaces Electrical furnaces are used in Metallurgical and engineering industries such as forging and foundry, machine tools, automobiles, etc Shunting Locomotives: Shunting locomotives for internal transport facilities are essentially used in railways, steel plants, thermal power plants, etc. 19

8 2.1.7 Characteristics of the Indian Capital Goods Sector 16 Fortune of this sector linked with that of the overall industry, because capital goods are tangible assets, such as factories, machines and small tools individuals or organizations use to make products and services. They are manufactured means of production; with natural resources and human labor, they are the basic components of the production process. Their purpose and use distinguishes them from consumer products we use every day. Manufacturing sector is the key end-user sector of capital goods, because any manufacturing activity requires heavy machinery or even small scale manufacturing industry do require some or the other machinery i.e. capital goods. Labour is highly cost-competitive as the capital goods have tendency to replace labour and thus produce more than labour intensive industry which reduces the cost. Inputs/raw materials used are mainly local/domestic in origin so sourcing and procurement of raw materials becomes easy. While involving capital goods for manufacturing activity the industry increases its chances to suffer from low technological competitiveness. Capital goods sector in India Suffers from a Relative lack of sub-contracting arrangements, despite large scale SME presence in engineering sector. High incidence of indirect taxation (excise duty, octroi duty/entry tax), central sales tax, sales tax, service tax, etc), as compared to other nations thus has a greater impact on profits. This Sector Lags in strong institutional mechanisms for export credit and promotion which obstructs its growth story of sector and its international presence. Public Sector Enterprises (PSE) have dominance in heavy engineering, machine tools, boiler manufacturing. On the other hand, private firms prevail in industrial machinery segments such as cement, sugar and most other non

9 electrical machinery which leaves no room for competition and dearth of innovation. Output concentrated with top few companies in most product groups, generally with large PSEs, followed by a middle layer of companies comprising large private sector players and multi-national companies, followed by a large number of small units at the bottom of the pyramid. Presence of a large width of products, with almost all major capital goods being manufactured locally thus giving easy availability of the goods and reducing transportation time and cost. Indian companies, in general, lack export thrust, as the focus is largely on the domestic market and thus limiting their opportunities of going global. Most items produced compare functionally with those manufactured elsewhere in the world, but lag behind as far as finish is concerned thus not being 100% quality Product. Focus/investment in branding and marketing, but customer oriented approach is low. Table 2.3 Leading Players in Heavy Electrical Industry during the year Categories Transformers Switchgears Steam & Hydro Turbines Generator/Generating Sets Boilers Electric Furnaces Players Source: Prowess; Compiled by D&B Research Crompton Greaves, BHEL, Vijay Electricals, Emco, Bharat Bijlee ABB, Siemens, L&T, Crompton Greaves, BHEL, Areva T& D India Ltd (formerly Alstom) BHEL, Triveni Engineering & Inds., Belliss India Honda Siel Power Products, Powerica, Kirloskar Electric Co., Cummins India BHEL, Thermax, Saraswati Industrial Syndicate, Sterling Strips Electrotherm (India) Ltd. 21

10 2.1.8 Classification of the Heavy Engineering and Machine Tool Industry as per the Department of Heavy Industries and Public Enterprises Textile Machinery Industry The textile machinery industry in India manufactures machinery needed for sorting, cording, processing of yarns/ fabrics and weaving, along with the components, spares and accessories. As per the Ministry of Heavy Industries, there are over 600 units engaged in the manufacture of machinery and spares, and out of these, about 100 units are manufacturing complete machinery. With the buoyant outlook on textile exports, the Indian textile machinery industry is gearing itself to take advantage of the vast opportunities of supplying machines required to cater to export target of garment manufacturers, post the Multi-Fibre Arrangement Cement Machinery Industry The Indian cement machinery industry manufactures complete cement plants, based on dry processing and pre-calcinations technology, for capacities up to 7500 TPD. The existing installed capacity of the industry is estimated to be Rs 6 bn/annum. According to the Ministry of Heavy Industries, presently there are 18 units in the organised sector for the manufacture of complete cement plant machinery Sugar Machinery Industry As per the estimates of the Ministry of Heavy Industries, there are presently 27 units in the organised sector for the manufacture of complete sugar plants and components. The industry s installed capacity is estimated to be Rs 200 crore. The industry can manufacture sugar plants for a capacity upto 10,000 TCD (tonnes crushing per day) Rubber Machinery Industry The rubber machinery industry in India manufactures inters-mixer, tyre curing presses, tyre moulds, tyre building machines, turnet servicer, bias cutters, rubber injection moulding machine, bead wires, etc. According to the Ministry of Heavy 22

11 Industries, currently there are 19 units in the organised sector for the manufacture of rubber machinery mainly required for tyre/tube industry Material Handling Equipment Industry The Indian material handling equipment industry manufactures a range of equipment including crushing and screening plants, coal/ore/ash handling plant and associated equipment such as stackers, reclaimers, ship loaders / unloaders, wagon tipplers, feeders, etc. The industry caters to the requirement of a host of core industries such as coal, cement, power, port, mining, fertilizers and steel plants. The Ministry of Heavy Industries estimates the presence of 50 units in the organized sector for the manufacture of material handling equipment. Apart from the organized players, there are a number of units present in the small scale sector. Imports of material handling equipment exceed their exports. Though comparatively much smaller than imports, exports have recorded buoyant growth in the recent years. The following table depicts the trend in trade in material handling equipment: Oil Field Equipment Industry The oil field equipment manufacturing industry manufactures drilling rigs for onshore drilling. Offshore drilling equipment like jack-up rigs, etc., are not manufactured indigenously. The industry however manufactures offshore platforms and certain other technological structures domestically. Bharat Heavy Electricals, Hindustan Shipyard, Mazagon Dock and Burn & Co. are some of the leading producers. The recent couple of years have witnessed a surge in exports of oil field equipment. However, the industry remains a net importer, as can be seen from the table below: Metallurgical Industry According to the Ministry of Heavy Industries, currently there are 39 units in the organised sector which are engaged in the manufacture of metallurgical machinery. Metallurgical machinery includes equipment for mineral beneficiations, ore dressing, size reduction, steel plant equipment, foundry equipment and furnaces. 23

12 Mining Machinery Industry The various type of mining equipments include Longwall mining equipments, road header, side dischargers loader, haulage winder, ventilation fan, load haul dumper, coal cutter, conveyors, battery locos, pumps, friction prop, etc. The Ministry of Heavy Industries estimates the presence of 32 manufacturers of mining machinery both in the public and private sector for underground and surface mining equipments. Out of these, 17 units manufacture underground mining equipments. Exports of mining machinery were observed to be negligible, as compared to their imports Dairy Machinery Industry The Indian dairy machinery manufacturers produce a range of equipments including stainless steel dairy equipments, evaporators, milk refrigerators and storage tanks, milk and cream deodorizers, centrifuges, clarifiers, agitators, homogenisers, spray dryers and heat exchangers (tubular and plate type), etc. As per the Ministry of Heavy Industries, presently there are 16 units manufacturing dairy machinery and equipment in the organised sector, both in private and public sector. The Indian engineering industry is highly competitive, with several companies having a presence in each of the segments. Several multinational companies of the likes of ABB, Siemens, Honda, Cummins, have entered the industry. 17 Table 2.4 Leading Players in the Heavy Engineering Industry Categories Players Lakshmi Machine Works Ltd, Veejay Lakshmi Engg. Textile Machinery Works Ltd, Lakshmi Automatic Loom Works Ltd, Batliboi Ltd Cement Machinery Larsen & Toubro Ltd, Walchandnagar Industries Ltd Sugar Machinery K C P Ltd Rubber Machinery Larsen & Toubro Ltd, Alfred Herbert Ltd Andhra Pradesh Heavy Machinery & Engg. Ltd, Bharat Material Handling Earth Movers Ltd, L & T-Komatsu Ltd., T R F Ltd, Telco Equipment Construction Equipment Co. Ltd, W M I Cranes Ltd Oil Field Equipment Sagar International Ltd Metallurgical Machinery Tata Steel Ltd Source: Prowess; Compiled by D&B Research

13 Machine Tool Industry The machine tool industry is regarded as the backbone of the entire industrial engineering industry. The Indian machine tool industry manufactures almost the entire range of metal-cutting and metal-forming machine tools. Apart from conventional machine tools and Computer Numerically Controlled (CNC) machines, the Indian industry also offers other variants such as special purpose machines, robotics, handling systems, and TPM-friendly machines. The Ministry of Heavy Industries estimates the presence of around 150 machine tool manufacturers in the organised sector and around 300 units in the small ancillary sector. Nearly 73% of the total machine tools production in India is contributed by the leading 10 companies in the industry. The industry has an installed capacity of over Rs 10 bn and employs a workforce (direct/indirect) of 65,000 skilled and unskilled persons. The machine tool manufacturers in India produce general purpose machinery of international standards (inj terms of quality, precision and reliability). However, they lag behind in terms of design and engineering capability so as to be able to undertake very high precision CNC. 25

14 Leading Players in Machine Tools Industry as shown in Table 2.5 (Year ) Table 2.5 Players in Machine Tools Industry Product Players Categories CNC Lathes Ace Designers Ltd Lakshmi Machine Works Ltd Machining Centres Bharat Fritz Werner Ltd Ace Manufacturing Systems Ltd Presses ISGEC Electropneumatics & Hydraulics India Pvt Ltd Grinding Machines Special Purpose Machines Surface Grinders Vertical Turning Boring Bending Machine Gear cutting Parishudh Machines Pvt Ltd Widia India Ltd Praga Tools Ltd Alex Machine Tools Ltd HMT Machine Tools Ltd Electropneumatics & Hydraulics India Pvt Ltd Premier Automobiles Ltd Micromatic Grinding Technological Ltd Bharat Fritz Werner Ltd HMT Machine Tools Ltd Premier Automobiles Ltd Hindustan Hydraulics Pvt Ltd HMT Machine Tools Ltd HMT Machine Tools Ltd HMT Machine Tools Ltd Hindustan Hydraulics Pvt Ltd HMT Machine Tools Ltd HMT Machine Tools Ltd ISGEC Source: Ministry of Heavy Industries; Compiled by D&B Research Jyoti Lakshmi Machine Works Ltd Bemco Hydraulics Pvt Ltd PMT Machine Tools Automatics Ltd Motor Industries Co. Ltd Askar Microns Pvt Ltd Jyoti Lokesh Machine Ltd Maharashtra (Mumbai and Pune), Punjab (Jalandhar and Ludhiana), Gujarat (Ahmedabad, Baroda, Jamnagar and Rajkot), Tamil Nadu (Chennai and Coimbatore) and Karnataka (Bangalore and Mysore), and some parts of eastern India are the hub of manufacturing activities in the machine tools industry. 26

15 2.1.9 Light Engineering Industry The Indian light engineering industry is highly diversified, comprising of a number of distinctive sectors and sub-sectors. The product range in this industry varies from highly sophisticated microprocessor based process control equipment and diagnostic medical instruments to low-tech items such as castings, forgings, and fasteners, among others. The sector also includes products such as bearings, steel pipes and tubes, etc. Most of the products in the light engineering industry serve as inputs for the capital goods industry. The health of the light engineering industry is therefore dictated by the demand for capital goods The major sub-segments within this industry are: Medical and Surgical Instruments The medical and surgical instruments segment includes a wide array of equipments and apparatuses. These include medical and surgical instruments, dental equipment, electro-medical apparatus, orthopaedic appliances, physiotherapy equipments, X-ray machines, among others. These instruments find application in diagnosis, therapy, and patient monitoring and thus play a crucial role in the healthcare delivery system. Output of the Indian medical and surgical instruments industry, which is around four decades old, was very small until a few years back. In recent years, liberalisation and growing health awareness has accelerated the growth of the domestic industry and also led to a rise in imports of medical and surgical instruments into India. Domestic production comprises of wide range of medical equipment including Electro- Cardiograph (ECG) machines, X-ray machines, electro-surgical instruments, blood chemistry analysers, among others. The domestic industry meets around 40% of the demand for medical equipment, while the rest is met through imports. Demand for sophisticated instruments such as nuclear magnetic resonance (NMR) scanners, multichannel monitors, among others are met through imports. Majority of the end-users prefer to deal with foreign companies, as Indian manufacturers who are concentrated in the small-scale sector are not able to provide after sales service. Rising income levels, growing health consciousness, and rise of medical tourism are expected to drive the demand for medical and surgical instruments. Government s 27

16 commitment to improve healthcare facilities and liberalization of trade and investments laws would also expand the market for medical and surgical instruments Process Control Instruments Process control instruments and systems are instruments and systems used for measurement and control of process variables. Process variables are physical or chemical parameters, the variations of which can affect the operation of a manufacturing process. These variables include humidity, pressure, temperature, liquid level, flow, vacuum, vibration, specific gravity, and chemical composition including ph, among others. Use of process control instruments and systems is highly significant in large and sophisticated process industries such as fertilisers, power plant, steel, cement plants, petroleum refineries, and petrochemical industries, among others. The industry is delicensed and 100% FDI is permitted in this sector. There are 26 units in the organised sector engaged in the manufacture of process control instruments and systems. Seven of these 26 units are capable of implementing the entire instrumentation system including software required by the process industries. The domestic manufacturers meet around two-thirds of India s demand for process control instruments and systems. Transfer of technology has been the major cornerstone for the development of the domestic process control instruments and system industry. There exists a gap between technology adopted in India and contemporary international technology. Technology presently used in the Indian industry is microprocessor based centralised control system. The Indian industry is capable of handling open control systems and smart control devices; however, latest developments such as total integrated management and control approach, which are currently being adopted in the developed countries, are yet to be adopted in the country. Demand for these instruments and systems are dependant largely on the progress of implementation of various mega projects in the fields of power, steel, fertilisers, petrochemicals and refineries. Exports in this industry have not recorded significant growth over the years. Technology gap between technology adopted in India and international adopted technology combined with fast obsolescence, lack of standardisation and quality control have all led to lower exports from the country. 28

17 Antifriction roller bearing Roller bearings are components used to reduce or eliminate friction between moving parts and thus reduce wear & tear of machines. They help improve machine performance and are thus a critical component of any equipment that rotates. It finds varied application, ranging from simple electric fans to complex space rockets. Depending on its usage, a bearing may have to withstand prolonged use, high-speed rotation, varied temperatures, or a corrosive environment. Bearings are available in two distinctive shapes, ball, and roller. There are four different types of roller bearings cylindrical roller bearings, needle roller bearings, tapered roller bearings and spherical roller bearings. The Indian bearing industry has recorded good growth in the past few years. The Indian manufacturers are able to meet around 70% of the demand for general purpose bearings. The Indian bearing industry s product range comprises of around 500 types of bearings. Indian manufacturers do not produce special purpose bearings as demand for the same is low and investments required are huge as bearings is a capital intensive industry. Special purpose bearings are therefore imported. The bearings industry is highly fragmented. There are around 20 units in the organised sector engaged in the manufacture of ball and roller bearings. The organised sector caters to both the original equipment manufacturers and replacement market. The unorganised sector, which manufacturers low quality small bearings caters to the replacement market. The manufacturing activity of a few small-scale units is restricted to assembly of imported components Industrial Fasteners Industrial fasteners cover a wide range of products such as nuts, screws, bolts, studs, rivets, nails, washers, etc. Fasteners can be broadly classified into two groups, high tensile strength fasteners, and mild steel fasteners depending on their tensile strength. Manufacturer of high tensile fasteners requires superior technology and are mainly manufactured in the organised sector, while, manufacturing of mild steel fasteners is concentrated in the unorganised sector. In fact, manufacture of all types of fasteners except high tensile fasteners and special purpose fasteners are reserved for the SSI sector. Fasteners are used in the assembly of engineering systems. 29

18 The automobile industry is the largest consumer of fasteners. The other major usersegments are textile machinery, railway locomotives, construction, computer hardware and general engineering. There exists huge export potential for Indian industrial fasteners, however, poor product standardisation, relatively higher raw material costs, and low labour productivity make Indian fasteners less competitive in the global market Ferrous Castings Ferrous castings constitute essential intermediates for automobiles, industrial machines, power plants, chemicals & fertiliser plants and cement plants, among others. They are therefore vital for the growth and development of the engineering industry. The domestic industry is well established. Being a highly polluting industry, many of the developed countries are withdrawing from this industry. This gives rise to a huge export potential for Indian manufacturers. To capitalise on this export demand, leading manufacturers have undertaken modernisation and up gradation of their manufacturing facilities to improve productivity and product quality and also economise on production costs. Given the wide spread usage of castings across industries and huge export potential, there exists considerable scope for establishing additional capacity in this area Steel Forgings The forging industry has emerged as one of the major contributors to the manufacturing sector of the Indian economy. Depending on the scale of operations, the industry can be categorised as large, medium, small, and tiny. SMEs comprise a major portion of this industry. The industry consists of around 330 odd units, of which there are around 100 units in the medium and small sector, and only around 9-10 units are present in the large scale. There are huge numbers of units functioning in the tiny sector. Increasing globalisation has led to sharp rise in investments in the sector. This has led to the industry becoming capital intensive from being labour intensive. Total investment in the large and medium sectors of the forging industry is estimated to be around US $ 600 mn. To expand their markets and have a global reach, the smallscale units are also increasing their capital investments. The small-scale units have upgraded their facilities in terms of technology and quality and a number of them are now suppliers to Original Equipment Manufacturers (OEMs) in the automobile sector. 30

19 The automotive industry is the major end-user of the forging industry. The other user industries include industrial machines, railways, oil & gas, power plants, and chemical plants, among others Seamless Steel Pipes & Tubes Seamless steel pipes & tubes find widespread usage in the hydrocarbon industries, processing & general engineering industries. Boiler pipes, as the name suggests are used in boilers, heat exchangers, super heaters, among others, while casing & tubing are used for drilling of oil and gas. Seamless pipes find application in industries where strength, resistance to corrosion and long shelf life are critical. The industry is delicensed and 100% FDI is permitted in the sector under the automatic route. The oil sector is the major end-user segment of seamless pipes & tubes. The other user segments include boilers, ball bearings, automobiles, chemical plants, fertilisers, petrochemical plants, industrial machinery, among others. The oil sector accounts for around 60% of total demand, while, the bearings, automobiles, and boiler sector account for around 30% of total demand. There could be a significant shift in the demand pattern for seamless pipes and tubes due to the robust growth expected in the power and automobile sectors Electrical Resistance Welded (ERW) Steel Pipes & Tubes ERW steel pipes & tubes find widespread usage across industries and fields. In addition to various engineering industries, they are used for water, oil and gas distribution, line pipes, fencing, scaffolding, etc. They are also used for agricultural purposes, drinking water supply, thermal power, for hand pumps for deep boring wells and also as protection for cables (telecom), among others. Depending on the requirement of the end user industry, ERW steel pipes & tubes are available in various wall thicknesses, diameters, and qualities. The different types include line precision pipes, tubular poles, electric poles, lightweight galvanised pipes for sprinkler irrigation, among others. The industry has sufficient capacity to manufacture the different types of pipes & tubes. High performance ERW steel pipes & tubes possess high strength, toughness and are corrosion resistant. 31

20 In the manufacturing process of ERW steel pipes & tubes, the edges to be welded are mechanically pressed together and electric resistance or electric induction is used to generate the heat required for welding. With the adoption of better welding technology, ERW pipes & tubes are now widely used in the oil & gas sector. A number of ERW steel pipes & tubes production units are in the SSI sector. Higher demand from the oil & gas industry, infrastructure, and automobile industries has led to a healthy increase in production of ERW steel pipes Submerged-Arc Welded (SAW) Pipes SAW pipes are mainly used for oil & gas transportation and water distribution. SAW pipes are of two major types, longitudinal and helical welded SAW pipes. The later are used for low-pressure application, while longitudinal SAW pipes are preferred for high-pressure application such as gas pipes. Longitudinal SAW pipes are more than 25 mm in thickness. In terms of production costs, it costs less to manufacture helical SAW pipes as compared to longitudinal SAW pipes. In the manufacturing process of submerged-arc welded pipes, the heat necessary to melt the edges of metal to be joined together is generated with the help of a concealed arc with no pressure between the two sides of the weld Bicycle Industry The Indian bicycle industry can be categorised into two segments, those manufacturing bicycle parts, and those manufacturing complete bicycles. Majority of bicycle parts and components are manufactured in the small-scale sector, since most of the components other than free wheels and single piece hubs are reserved for the small-scale sector. Large units are permitted to manufacture bicycle frames, chains, rims, and that too only for captive consumption. Complete bicycles are manufactured in the organised sector. Four companies account for over 90% of total bicycle production in the country Sewing Machines In India, the manufacture of conventional hand operated sewing machines is reserved for the small-scale sector. Domestic demand for these is fully met by the Indian manufacturers. There exists a huge potential for exports of sewing machines to 32

21 developing countries. During FY05, exports and imports of sewing machines were Rs 0.6 bn and Rs 4.8 bn respectively Plain Paper Copier Plain paper copier, a device used for reproducing copies of documents, typescripts, photographs, among others has become a very important office automation device. At present, there are only 12 units in the country manufacturing this device and most of them have technical collaboration with foreign companies. The introduction of the low priced personal copier has altered the demand pattern for plain paper copiers. The personal copiers are more users friendly and come with customer replaceable toner cartridge and plate receptor drums. The demand in the engineering sector will remain healthy because of the Government s increased thrust on infrastructure development. The continuing growth of the manufacturing sector and favourable regulatory policies would provide further boost to the sector s growth. Fresh investments in the power equipment, metals, oil & gas, and petrochemicals industries, coupled with robust industrial activity is expected to drive the growth momentum in the capital goods industry in the near Future. 2.2 Clusters in India A cluster is a sector targeted geographical concentration of micro and/ or small & medium enterprises (MSMEs/MSMEs), service providers and institutions faced with common opportunities and threats. In other words, a cluster of MSMEs is a concentration of economic enterprises, producing a typical product/service or a complementary range of products/services within a geographical area. The location of such enterprises can span over a few villages, a town or a city and its surrounding areas. Thus a cluster of MSMEs, hereafter referred to as cluster, is identified by the product/service that the micro and small enterprises produce and the place where the enterprises are located. Foundation for MSME Clusters assists institutions in undertaking cluster based local area development, effectively and inclusively in developing and transition economies Features of Cluster Give rise to collective benefits, for example through the spontaneous inflow of suppliers of raw materials, components and machinery or the availability of workers with sector specific skills. 33

22 Favour the creation of providers of specialised technical, administrative and financial services. Create a conducive environment for the development of inter-firm co-operation as well as of co-operation among public and private institutions to promote local production, innovation and collective learning Clusters: Some Facts Around 1157 SME (industrial) and approx artisan/micro enterprises clusters are estimated to exist in India. The micro and SME clusters in India are estimated to have a significantly high share in employment generation. Region Table 2.6 Region Wise Distribution of Clusters in India Traditional Manufacturing Micro Enterprise Handicraft Handloom Others NO. % NO. % NO. % NO. % North East West South North-East Total Source: Some of the Engineering clusters are presented below which is not exclusive list. 34

23 2.2.3 Engineering Clusters in India Sr. No. Table 2.7 Engineering Clusters in India State District Segment 1 Haryana Karnal Agricultural Implement 2 Maharashtra Jalgaon Agricultural Implement 3 Punjab Jalandhar Agricultural Implement 4 Punjab Patiala Agricultural Implement 5 Tamil Nadu Coimbatore Agricultural Implement 6 Uttar Pradesh Varanasi Agricultural Implement 7 Karnataka Dharwad Agricultural Implements and Tractor Trailer 8 Delhi Okhla Auto Components 9 Haryana Faridabad Auto Components 10 Haryana Gurgaon Auto Components 11 Jharkhand Adityapur Auto Components 12 Madhya Pradesh Pithampur Auto Components 13 Maharashtra Ahmednagar Auto Components 14 Maharashtra Aurangabad Auto Components 15 Maharashtra Pune Auto Components 16 Punjab Ludhiana Auto Components 17 Tamil Nadu Chennai Auto Components 18 Gujarat Ahmedabad Auto Components 19 Rajasthan Jaipur Ball Bearing 20 Punjab Ludhiana Bicycle Parts 21 Gujarat Ahmedabad Castings & Forging 22 Gujarat Rajkot Castings & Forging 23 Maharashtra Gadchiroli Castings & Forging 24 Punjab Batala Castings & Forging 25 Tamil Nadu Coimbatore Castings & Forging 26 Chattisgarh Raipur Castings & Metal Fabrication 27 Maharashtra Sindhudurg Copper Coated Wires 35

24 28 Punjab Patiala Cutting Tools 29 Gujarat Rajkot Electric Motors 30 Delhi Naraina Electrical Equipment 31 Haryana Gurgaon Electrical Equipment 32 Rajasthan Jaipur Electrical Equipment 33 Uttar Pradesh Noida Electrical Equipment 34 Madhya Pradesh Dewas Electronic Goods 35 Andhra Pradesh Hyderabad Electronic Goods 36 Delhi Naraina Electronic Goods 37 Gujarat Ahmedabad Electronic Goods 38 Haryana Gurgaon Electronic Goods 39 Karnataka Bangalore Electronic Goods 40 Maharashtra Mumbai Electronic Goods 41 Maharashtra Pune Electronic Goods 42 Uttar Pradesh Noida Electronic Goods 43 Bihar Barauni Engineering & Fabrication 44 Jharkhand Bokaro Engineering & Fabrication 45 Jharkhand Jamshedpur Engineering & Fabrication 46 Maharashtra Nagpur Engineering & Fabrication 47 Orissa Cuttack Engineering & Fabrication 48 Haryana Faridabad Engineering Equipment 49 Haryana Pinjore Engineering Equipment 50 Himachal Pradesh Parwanoo Engineering Equipment 51 Madhya Pradesh Bhopal Engineering Equipment 52 Maharashtra Jalna Engineering Equipment 53 Maharashtra Mumbai Engineering Equipment 54 Tamil Nadu Tiruchirappalli Engineering Equipment 55 Punjab Ludhiana Forging 56 Andhra Pradesh Hyderabad Foundry 57 Haryana Samalkha Foundry 58 Karnataka Belgaum Foundry 59 Maharashtra Kolhapur Foundry 60 Uttar Pradesh Agra Foundry 61 West Bengal Howrah Foundry 36

25 62 Andhra Pradesh Hyderabad Hand Pumpsets 63 Maharashtra Mumbai Handtools 64 Maharashtra Nagpur Handtools 65 Punjab Jalandhar Handtools 66 Punjab Ludhiana Handtools 67 Rajasthan Nagpur Handtools 68 West Bengal Jhalda Proper Handtools 69 Punjab Ludhiana Industrial Fasteners 70 Karnataka Bangalore Light Engineering 71 Maharashtra Sangli M S Rods 72 Andhra Pradesh Balanagar Machine Tools 73 Gujarat Ahmedabad Machine Tools 74 Gujarat Bhavnagar Machine Tools 75 Gujarat Rajkot Machine Tools 76 Karnataka Bangalore Machine Tools 77 Maharashtra Mumbai Machine Tools 78 Punjab Batala Machine Tools 79 Punjab Ludhiana Machine Tools 80 Tamil Nadu Coimbatore Machine Tools 81 Delhi Okhla Mechanical Engineering Equipment 82 Haryana Gurgaon Mechanical Engineering Equipment 83 Rajasthan Jaipur Mechanical Engineering Equipment 84 Uttar Pradesh Agra Mechanical Engineering Equipment 85 Uttar Pradesh Ghaziabad Mechanical Engineering Equipment 86 Uttar Pradesh Noida Mechanical Engineering Equipment 87 West Bengal Taltala Mechanical Engineering Equipment 88 Delhi Mayapuri Metal Fabrication 89 Haryana Rohtak Nuts/Bolts 90 Gujarat Rajkot Oil Mills Machinery 37

26 91 Haryana Ambala Scientific Instruments 92 Uttar Pradesh Hathras Sheetwork (Globe, Lamp) 93 Uttar Pradesh Varanasi Sheetwork (Globe, Lamp) 94 Chattisgarh Raipur Steel Re-rolling 95 Gujarat Bhavnagar Steel Re-rolling 96 Jammu & Kashmir Jammu Steel Re-rolling 97 Punjab Mandi Govingarh Steel Re-rolling 98 West Bengal Howrah Steel Re-rolling 99 Punjab Jalandhar Surgical Instruments 100 West Bengal Kalyanpur Surgical Instruments 101 Uttaranchal Roorkee Survey Instruments 102 Gujarat Surat Textile Machinery 103 Gujarat Ahmedabad Textile Machinery Parts 104 Tamil Nadu Coimbatore Wet Grinding Machines Note: Not an exhaustive list Source: UNIDO, SIDO; Compiled by D&B Research, The above list depicts the distributions of various engineering sectors all over the country. Out of these, this study is confined to Andhra Pradesh and Gujarat, two states with a better presence of industries as shown in table Overview of Chemical and Pharmaceutical Industry of India Chemical Industry of India A key constituent of the Indian economy that accounts for about five percent of the GDP, the Indian chemical industry is the eighth largest sector in the world and the third largest in Asia by volumes, after China and Japan. The country s chemical industry was estimated at USD 91 billion in 2011 and its believed that it has the potential to reach USD 134 billion by 2015 growing at a CAGR of 10 percent. The growth is expected to be driven by rising demand in end-use segments and expanding exports fuelled by increasing export competitiveness. The industry is a multi-product and multi-faceted one that comprises of basic chemicals, pharmaceuticals, petrochemicals, specialty chemicals, agrochemicals and biotechnology and their sub segments. Within the sub segments, the petrochemicals 38

27 industry is growing at the rate of around 15 percent annually (2011). In India, the percapita consumption of most of the finished products under the chemicals sector is far below the world average, which demonstrates the industry s enormous potential for growth. The government of India plans to invest USD 34 billion in three approved Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIRs); it also plans to establish port-based chemical parks in special economic zones (SEZs) in the next five years. 18 The Indian Chemical Industry is made up of both small and large-scale units. The fiscal concessions granted to the small-scale sector in mid-eighties led to establishment of a large number of units in the Small Scale Industries (SSI) sector. Currently, the Indian Chemical industry is in the midst of a phase of major restructuring and consolidation. With the shift in emphasis on product innovation, brand building and environmental friendliness, this industry is increasingly moving towards greater customer orientation. Even though India enjoys an abundant supply of basic raw materials, it will have to build upon technical services and marketing capabilities to face global competition and increase its share of exports According to the world bank report of December 2011,the GDP per capita, adjusted by purchasing power parity, in India was 3582 USD. Past data shows that purchasing power of an Indian consumer is continuously growing and thereby the demand of goods and services are increasing though the inflation rate is increasing at 7.23% (last reported in April Q3, 2012) Industry segmentation The chemical sector of India directly or indirectly acts as a supplier of many of the commodities of daily use. It is extremely scientific in its approach and facilitates the provision of many of the important chemicals which are the basic materials for endproducts like paper, leather, paint, varnish, textile, and so on. The chemical sector in India supports the agrarian and industrial development.the chemical industry is comprised of a wide variety of products ranging from commodity chemicals to 18 Gyan Research and Analytics Pvt. Ltd., Annual Report , Chemgovt,FICCI,

28 research driven specialized chemicals. It s basically comprised of three categories: basic, specialty and knowledge chemicals 20 Table 2.8 Various segments of chemical industries along with their constituent industries and characteristics Segments Characteristics Constituent industries Basic Speciality Knowledge High Volume, low value-added Limited product differentiation across manufactures High entry barriers on account of high capital spend and stringent regulations High product differentiation and value-addition Typically smaller production units with more flexibility Low capital investment levels Differentiated chemical and biological substances used to induce specific outcomes in humans, animals plants and other life forms High investments I R&D and marketing Petrochemicals Fertilisers Inorganic chemicals Other industrial chemicals Adhesive sealants Catalysts Industrial gases Plastic additives Agrochemicals Pharmaceuticals Biotechnology Chemical Industry of India is also fragmented according to its application in various fields. 1) Agro chemicals 2) Fine chemicals 3) Specialty chemicals 4) Dyes Agro chemicals As an allied industry of agriculture, which accounts for about one fifth of India's GDP, the agrochemicals industry is a significant industry for the Indian economy. The Indian agrochemicals market grew at around 10%-11% over the last five years to reach ~$ 3.4 Bn in financial year India is the fourth largest producer of agrochemicals in the world after USA, Japan and China With 125 technical grade manufacturers and 800 formulators. Indian agrochemical exports have shown an impressive growth in the past few years due to excess capacity and availability of 20 Tracy Ma. Et., al,